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This State Offered Free College Education. Here’s What Happened

This State Offered Free College Education. Here’s What Happened.–51GH., b630

Several politicians have recently been offering free goodies to voters. One of the most popular of these, oddly enough, is something that several state governments have already tackled: free college tuition. The details vary by state, but Oregon, Tennessee, Georgia, Michigan, and Louisiana (among others) all use tax dollars to pay for at least some of their residents’ college tuition.

Louisiana provides a great case study for advocates of similar federal policies. Louisiana provides a great case study for advocates of similar federal policies. Louisiana just so happens to be in the news right now because the governor is threatening to suspend his state’s version of free college tuition for everyone.

The program started out in the late 1980s as the brainchildof oil tycoon/philanthropist Patrick Taylor. The program, which wasn’t originally named for him, started out as a tuition assistance plan only for low-income individuals. In 1997 the state removed the income caps. At that point, all Louisiana students, regardless of financial need, were made eligible for “free” tuition at any Louisiana public college. Once in college, students had to maintain a C average to keep their TOPS awards. As of 2010, approximately 70 percent of Louisiana’s high school graduates headed to college within one year. That’s nearly 20 percent higher than the rate in 2000.

Who’s Paying for It?

It’s easy to call the program a success because of this increase, but it’s just as easy to point out that the program doesn’t really provide free education. In one way or another, someone pays for it. Subsidies don’t really lower the cost of products and services; they only lower the up-front price that some people pay.

No Such Thing as Free Tuition

A person receiving “free” tuition may not see it (or even care), but subsides actually raise the total cost of an education. The core problem is that they remove the paying customer—in this case the student—from the equation. Without the subsidy, the paying customer receives the direct benefit for the service and bears the direct cost. If that person doesn’t think the cost is worth it, they don’t pay.

Louisiana’s program replaces this paying customer with groups of government officials. These officials neither receive the direct benefit nor endure the direct cost of obtaining an education. These groups do, however, benefit a great deal from obtaining more of your tax dollars. And they rarely bear any direct cost from either increasing your taxes or delivering a substandard education product. (The incumbency rate is fairly high for politicians.)

On a practical level, Louisiana’s program converts tuition payments into a state budget item. In other words, a large chunk of each school’s “tuition” becomes nothing more than revenue sent in by the state bureaucracy. In Louisiana, four separate higher education systems—each its own bureaucracy—fight over these “tuition” payments. Smaller schools inevitably get the smallest shares, but that’s kind of another story.

A Burden on University Resources

When the influx of students hits—more people going to school when tuition is “free” is pretty much a foregone conclusion—it strains universities’ existing resources. So the transfer of money has the natural tendency to lead to expanded facilities, faculty, and staff.

But these increases call for a permanently higher level of funding, and all of these effects tend to reinforce each other. That is, school officials have a built in reason to ask for larger transfers, and politicians have a built in excuse to raise taxes. When the state’s coffers are not flush with cash, the schools’ budgets get cut. Thus, universities have every incentive to raise more money from students who are not a part of the Taylor Opportunity Program.

Of course, for any given level of Taylor Opportunity Program students, a higher posted rate of tuition results in a larger transfer from the state. If the program covered full fees and tuition for literally every student, then taxpayers would bear the full cost. But it doesn’t, so non-TOPS students bear some of the cost. (Pretty much every student ends up paying higher fees directly, too, but that’s almost an aside.)

Non-subsidized markets don’t work this way—prices can actually fall in response to changes in demand and supply. Subsidized systems, on the other hand, are destined to result in higher—not lower—tuition. Recent numbers support this explanation. The Taylor Opportunity Program has nearly doubled in cost since 2008, and most of that increase has been due to higher tuition.